China’s Export Engine Chugging, Not in Full Steam Yet

Chinese exports in October hit a five-month high, rising close to 12 percent year on year, supporting views that the country's economic recovery is on firm footing, but economists warn this surge in exports may not be sustainable.

A rebound driven by Christmas orders could be a one-off, said experts, who foresee little pick-up in global demand going forward.

"October's stronger-than-expected exports growth was likely due to the seasonal pick-up of Christmas orders and better-than expected U.S. demand," HSBC economists Qu Hongbin and Sun Junwei wrote in a report. "On a seasonally adjusted basis, exports contracted by 2.3 percent month on month, in sharp contrast to the increase of 10.9 percent month on month in September."

China customs' data showed exports climbed in October by 11.6 percent from a year earlier, the fastest pace since May and beating expectations for a 9 percent rise. Shipments to the United States jumped to a four-month high of 9 percent from 5.5 percent in September. Orders to the European Union, China's biggest export market, also saw a smaller contraction of 8.1 percent, compared to 10.7 percent a month earlier.

All these offset slower exports to Japan, which grew 1.1 percent year on year in October compared to 2.2 percent in September.

"This trend of upside surprises will unlikely be sustained in the coming months considering the risks of 'fiscal cliff' in the U.S., the European crisis and still weak growth in other major emerging market economies," the HSBC economists added.

(Read more: Global Manufacturers Feel Squeeze From China Slowdown)

They also pointed to six straight months of contraction in new orders as shown in a sub-index of the HSBC Purchasing Managers' Index (PMI) from May to October. Another key indicator that they cited to show weak demand was a 13.8 percent year-on-year decline in orders placed during the autumn session of the Canton Fair, China's biggest trade show. This was wider than the 2.3 percent year-on-year decline in the spring session.

Economic data over the next few months will therefore be crucial, economists said.

"I am having trouble seeing a sustainable good story," Dominic Schnider, head of commodity research with UBS Wealth Management told CNBC. "Yes there is a little bit of buying and the drag from Europe is getting smaller, so that's good. But the U.S. has its own challenges and that's going to weigh on consumption."

Schnider was referring to the "fiscal cliff," a series of tax hikes and spending cuts that will kick in on January 1, 2013 if the U.S. Congress does not agree on a deal. When taxes do go up because of the "fiscal cliff'," consumption in the U.S. will "run out of steam" and hurt Chinese exports, he added.

Exports are still a crucial component of the Chinese economy, despite the state's efforts to rebalance the economy towards domestic consumption. The sector generated about 31 percent of gross domestic product (GDP) in 2011, World Bank data show, and supported an estimated 200 million jobs. Any weakness in exports will therefore weigh on China's growth, which is on track to grow at 7.5 percent in 2012.

Also causing concern for some economists are the import numbers, which remained weak. Imports in October grew only 2.4 percent, in line with September, but below forecasts for a 3.1 percent rise, Saturday's data showed.

Imports from the Association of Southeast Asian Nations expanded by 1.3 percent year on year in October, ending the contraction seen in the previous three months. But imports from Japan dropped by 10.2 percent year on year, extending the contraction into the third month.

"The weak imports confirm the fragility of the recovery in China's domestic demand," Shen Jiangguang, China economist with Mizuho Securities said in a note on Monday.